Las dificultades del aprendizaje de las matemáticas

In 2004, the World Bank conducted a review of accounting and auditing practices in Sri Lanka. The objective of this review was to evaluate the weaknesses and strengths of the accounting and auditing requirements, and to compare actual practices with the reporting requirements (World Bank, 2004). The IFRS and International Standards on Auditing served as benchmarks for evaluating international comparability of locally applicable accounting and auditing requirements. The review identified gaps between Sri Lanka accounting standards and the IFRS (World Bank, 2004). According to the World Bank (World Bank, 2004, p. 11), “a gap exists between Sri Lanka Accounting Standards and International Accounting Standards mainly for two reasons: non-adoption of certain International Accounting Standards; and the introduction of an alternative method that is not permitted by International Accounting Standards”.

Following its evaluation of the Sri Lanka accounting and auditing standards, the World Bank made recommendations through their Report on the Observance of Standards and Codes. The World Bank mandated the use of the IFRS in Sri Lanka (World Bank, 2004). Accordingly, Sri Lanka Accounting Standards are based on the IFRS formulated by the IASB (Institute of Chartered Accountants of Sri Lanka, 2014b). Entities having public accountability are required to comply with Sri Lanka Accounting Standards (SLFRSs), an equivalent of the IFRS. All Specified Business Enterprises are required to use full SLFRSs even if their securities do not trade in a public market.

Further, the CASL has introduced the Sri Lanka Accounting Standards for Small and Medium-Sized Entities (SLFRS for SMEs), an equivalent of the IFRS for SMEs effective from 1 January 2012 (Institute of Chartered Accountants of Sri Lanka, 2012). Before adoption of the IFRS in 2012, accounting standards issued for Specified Business Enterprises by the CASL were known as Sri Lanka Accounting Standards (SLAS), and the accounting standards issued for small and medium sized

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enterprises were called the Sri Lanka Accounting Standards for Smaller Enterprises (SLASSE).11

Sri Lanka made no modifications to the IFRS for SMEs and adopted the SME definition given by the IASB. The president of the CASL believes that adopting the IFRS for SMEs would allow banks and other financial institutions to better access a company’s performance and risk, as well as improve confidence in company records and reduce barriers to accessing finance (Institute of Chartered Accountants of Sri Lanka, 2014b). Further, the president of the CASL stated that local SMEs would be able to establish a comparable set of financial statements with SMEs globally. In 2012, the World Bank extended a grant of US$500,000 to the CASL. One of the aims of this grant was to strengthen the financial reporting of SMEs by improving the awareness and skills in IFRS for SMEs among SME accountants (Sunday Observer, 2012).

The CASL introduced SLFRS for Smaller Entities in 2015. This accounting standard became operative for financial statements covering periods beginning on or after 1 January 2016. It could be applied by an entity that is not any of the following: (a) an entity that had revenue in excess of Rs100 million (approximately US $671,140) in the reporting period; (b) an entity that had equity in excess of Rs50 million (approximately US$335,570) at the end of the previous reporting period; (c) a company that is required to prepare group financial statements by the law relating to companies; or (d) an entity that holds assets in a fiduciary capacity as one of its primary businesses (Institute of Chartered Accountants of Sri Lanka, 2015). The

11 _{Smaller Enterprises (SE) are companies, not listed in a stock exchange licensed under the}

Securities and Exchange Commission Act No. 36 of 1987 which fall below all the upper thresholds and stand above any one of the lower thresholds described as follows. Upper Thresholds: (1) Which have an annual turnover below Rs750 million; (2) At the end of the previous financial year, had shareholders' equity below Rs150 million; (3) At the end of the previous financial year, had gross assets below Rs450 million; (4) At the end of the previous financial year, had liabilities to Banks and other financial institutions below Rs150 million and (5) Have a staff below 1000 persons. Lower Thresholds: (1) Which have an annual turnover in excess of Rs50 million or (2) At the end of the previous financial year, had shareholders' equity in excess of Rs10 million or (3) At the end of the previous financial year, had gross assets in excess of Rs30 million or (4) At the end of the previous financial year, had liabilities to Banks and other financial institutions in excess of Rs10 million or (5) Have a staff in excess of 100 persons.

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content of the accounting standard SLFRS for Smaller Entities and a comparison of this accounting standard with SLFRS and SLFRS for SMES are presented in appendix A.

2.8 Summary

This chapter discussed the uniqueness of Sri Lanka in terms of its historical, cultural and religious values, as well as the legal and political environment, the economic and social environment, and the financial reporting environment. Sri Lanka has a rich historical and cultural heritage covering more than 2,500 years. Buddhism evolved as an integral part of the Sri Lankan culture under royal patronage. Sri Lanka was under colonial rule for more than four centuries. Sri Lanka’s culture, commercial practices, legal systems, and education were largely influenced by the British who created the crown colony. Sri Lanka has become a multi-cultural, multi- religious, and multi-lingual country.

Evidence of financial reporting practices in ancient Sri Lanka can be found in Buddhist monasteries, which were required to keep accounting records. Subsequently, financial reporting practices were largely influenced by the British. More recently, the financial reporting practices were directly subject to international influences such as those of the World Bank. Following the World Bank’s recommendations, Sri Lanka adopted into their financial reporting system the IFRS issued by the IASB. Since the IASB uses English as the language for publishing their materials, the diversity in cultures and languages may cause problems of inconsistent interpretation and application of IFRS for SMEs within the country (Poudel et al., 2014).

The adoption of IFRS for SMEs is not likely to result in increasing transparency and accountability due to the underdeveloped legal and institutional framework in Sri Lanka. The broad aim of comparable financial statements may be undermined if weak enforcement and corruption leads to different compliance levels across companies (Poudel et al., 2014). Recruitment of skilled personnel could also be problematic and very expensive for Sri Lankan SMEs as there is a shortage of qualified accountants. Lack of widespread technical expertise in Sri Lanka may have implications on the effective implementation of international accounting

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standards. This raises questions about whether accounting standards developed with significant influence from advanced industrialised countries, are suitable for developing countries if they are not modified to reflect local conditions (Poudel et al., 2014).

The next chapter which discusses the literature on SME financial reporting may provide some indications and understandings on how Sri Lanka could develop their accounting practices.

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CHAPTER THREE

FINANCIAL REPORTING BY SMALL AND MEDIUM

ENTITIES

3.1 Introduction

Financial reporting by SMEs has attracted enormous attention, particularly after the issue of the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs) (see: Aboagye-Otchere & Agbeibor, 2012; Albu, 2013; Albu et al., 2010; Albu et al., 2013; Chand et al., 2015; Devi & Samujh, 2014, 2015; Eierle & Haller, 2009; Kaya & Koch, 2015; Litjens, Bissessur, Langendijk, & Vergoossen, 2012; Ram & Newberry, 2013). The International Accounting Standards Board (IASB) was not the first to develop a differential financial reporting framework12 for Small and Medium Entities (SMEs). Differential reporting for SMEs has been articulated and practised for number of years in some developed countries such as United Kingdom (1997), and New Zealand (1994) as well as some developing countries such as Sri Lanka (2003), and South Africa (2000) (Confederation of Asian and Pacific Accountants, 2003). The justification for differential financial reporting rests mainly on two foundations: differences between users and their information needs; and the cost-benefit of SME financial reporting (Eierle, 2005).

Sri Lanka’s adoption of IFRS for SMEs supersedes the Sri Lankan Accounting Standards for Smaller Enterprises (SLASSE) issued in 2003. Even though, the IFRS for SMEs is simpler than the full IFRS it is still based on a framework which focuses strongly on outside equity investors as the main users of financial information (Devi & Samujh, 2014; Di Pietra et al., 2008; Evans et al., 2005). The basic objective of financial reporting taken from that framework does not seem to be appropriate for

12_{Differential reporting is built on “the notion that some entities should be allowed to depart from}

some particular requirements of accounting standards or the entire accounting standards in preparing their financial statements”(Confederation of Asian and Pacific Accountants, 2003, p. 7).

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SMEs since most of them are managed by their owners and there is little need for stewardship reporting between the management and the owners (Carsberg et al., 1985). Thus, a critical question that arises is whether the primary users of SME financial information are same as the users of large entities. As the basis of any financial reporting framework is information needs of users, the users and their uses of SME financial information needs to be explored. A review of previous studies regarding users and uses of SME financial statements assists to identify gaps in the literature and provides rationale for the research questions. This chapter therefore reviews and analyses the literature on SME financial reporting, which has focused on two main issues: users and uses of SME financial information and the current financial reporting frameworks in various jurisdictions.

Section 3.2 begins with a discussion on SME definitions and provides the SME definition adopted for the study. This is followed by a discussion on the objectives of financial reporting in section 3.3 and the conceptual framework for financial reporting issued by the International Accounting Standards Board (IASB). Sections 3.4 and 3.5 review studies regarding users and uses of SME financial statements. Section 3.6 examines current financial reporting frameworks in various jurisdictions including Sri Lanka. Finally, section 3.7 concludes the chapter.